Donata Company purchased equipment for $45,000 in December 20x1. The equipment is expected to generate $12,000 per year of additional revenue and incur $6,000 per year of additional cash expenses, beginning in 20x2. Under MACRS, depreciation in 20x2 will be $7,000. If the firm's income tax rate is 20%, the after-tax cash flow in 20x2 would be: Multiple Choice O O с $1,200. $2,200. $3.600.

Donata Company purchased equipment for $45,000 in December 20x1. The equipment is expected to generate $12,000 per year of additional revenue and incur $6,000 per year of additional cash expenses, beginning in 20x2. Under MACRS, depreciation in 20x2 will be $7,000. If the firm's income tax rate is 20%, the after-tax cash flow in 20x2 would be: Multiple Choice O O с $1,200. $2,200. $3.600.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 8PA: Referring to PA7 where Kenzie Company purchased a 3-D printer for $450,000, consider how the...

See similar textbooks

Similar questions

The Berndt Corporation expects to have sales of 12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be 1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndts federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndts expected net income? Its expected net cash flow? b. Suppose Congress changed the tax laws so that Berndts depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? c. Now suppose that Congress changed the tax laws such that, instead of doubling Berndts depreciation, it was reduced by 50%. How would profit and net cash flow be affected? d. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why?
Referring to PA7 where Kenzie Company purchased a 3-D printer for $450,000, consider how the purchase of the printer impacts not only depreciation expense each year but also the assets book value. What amount will be recorded as depreciation expense each year, and what will the book value be at the end of each year after depreciation is recorded?
The Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 23 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Net income $ Year 1 Year O 42,000 480 Year 1 Year 2 Year 3 Year 2 22,500, $21,500 $ 22,000$ 4,500 4,600 4,700 10,500 10,500 10,500 530 580 480 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 3 Year 4 Year 4 $19,500 3,900 10,500 ?
The Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 25 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Net income Cash flow $ Year 1 NPV 3,975 $ $ Year 0 Year O 34,000 $ 400 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 1 $ 17,500 3,700 8,500 450 Year 2 4,275 $ Year 1 5,300 $18,000 Year 2 Year 3 b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) Year 3 4,575 $ Year 2 3,800 3,900 8,500 8,500 500 400 $18,500 $15,500 3,100 8,500 ? Year 4 Year 4…
A company has purchased a machine (CCA rate 27 %) at $232,000 and has a tax rate of 38.00%. By how much will the NPV change if the company is able to obtain a $15,000 salvage value for its machine at the end of the project's life in Year 4? Assume a discount rate of 10.10% and that all else remains the same. a. $13,031 b. $10,208 c. - $2,823 d. $7,385 e. $10,852
Daly Publishing Corporation recently purchased a truck for $43,000. Under MACRS, the first year's depreciation was $8,600. The truck driver's salary in the first year of operation was $61,800. The company's tax rate is 30 percent. Required: 1-a. Calculate the after-tax cash outflow for the acquisition cost and the salary expense. 1-b. Calculate the reduced cash outflow for taxes in the first year due to the depreciation. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Calculate the after-tax cash outflow for the acquisition cost and the salary expense. After-Tax Cash Outflow Acquisition cost Salary expense
Daly Publishing Corporation recently purchased a truck for $30,000. Under MACRS, the first year’s depreciation was $6,000. The truck driver’s salary in the first year of operation was $32,000. The company’s tax rate is 30 percent. Required: 1-a. Calculate the after-tax cash outflow for the acquisition cost and the salary expense. 1-b. Calculate the reduced cash outflow for taxes in the first year due to the depreciation.
The Hills Company, a calendar year company, purchased a new machine for P280,000 on January 1. Depreciation for tax purposes will be P35,000 annually for eight years. The accounting (book value) rate of return (ARR) is expected to be 15% on the initial increase in required investment. On the assumption of a uniform cash inflow, this investment is expected to provide annual cash flow from operations, net of income taxes, of Group of answer choices P40,250 P77,000 P35,000 P42,000
A firm is investing in an equipment which falls in 5-years MACRS. The cost of the machineis $200,000 and the firm spent $20,000 for shipping, at the end of its life the machine couldbe sell for $30,000. If the firm is in 34% tax bracket compute the tax savings fromdepreciation in year-5.a.b.$ 14,960.00$ 13,600.00$ 11,333.33$ 8,616.96
A business purchases a capital asset for $289,000. The asset will be placed in a 20% CCA asset class and qualify for the Accelerated Investment Incentive. The business has a 35% marginal income tax rate. What is the CCA tax shield (e.g. reduction in taxes) for the third year as a result of owning this asset? a. $11,006 b. $11,455 c. $11,329 d. $11,218 e. $10,924
Economics A company purchased a piece of equipment for $175,000 and sells it after 3 years. The equipment is depreciated by the MACRS method using a five-year period. The annual maintenance cost of the equipment is $3,000. If the equipment is sold at end of 3 years for a value of $100,000, what will be the taxes that has to be paid from the sale of the equipment? Assume that the tax rate is 35%. O $6790 O $11480 O $8136 O No taxis to be paid
The Fancy Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 21 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 1 Year 2 a. Investment Sales revenue Operating costs Depreciation Net working capital spending 305 Year 0 $ 26,400 C. $ 13,500 2,950 6,600 205 Year 3 $15,100 3,125 4,300 6,600 6,600 235 $16,500 155 Year 4 $13,000 2,900 6,600 ? Compute the incremental net income of the investment for each year. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Compute the incremental cash flows of the investment for each year. (A negative amount should be b. indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number,…